Austin City Council should bring forth facts for changing Austin Energy’s governing structure

PublishedMarch 27, 2013

March 5, 2013

By Editorial Board
Austin American Statesman

In settling an appeal of Austin Energy’s recent rate increase that will give most of the 50,000 Austin Energy customers outside the city a discount on their electric rates, the city of Austin has gained some time and good will in moving forward with Austin Energy governance matters. The Austin City Council should use that time and good will to answer perhaps the most relevant question regarding a pending proposal to surrender control of Austin Energy to an independent governing board: Are municipal utilities operated by independent boards – such as San Antonio’s CPS Energy – outperforming Austin Energy?

The answer to that question – and not legislative politics – should drive the decision to change Austin Energy’s governing structure, lest the council set back an entity that has mostly operated successfully by standard benchmarks.

It’s really kind of telling that the City Council is poised to make such a decision without a performance study that compares the different models and their effectiveness. We asked Austin Energy and some council members whether they had requested such a study that looks at benchmarks over time – such as electric rates, transfers to city budgets, bond ratings, earnings, green initiatives, energy-saving/environmental initiatives, affordability measures, accountability/transparency, wasteful spending, management, lawsuits and other such factors – and the answer was "no."

Say what?

The council is readying itself to make a decision that would permanently change the city’s biggest and most profitable asset, valued at $3.8 billion and owned by Austin residents, and it has yet to get the facts about whether such changes have improved or lessened effectiveness of city-owned utilities and how Austin Energy stacks up to city-owned utilities governed differently.

When we asked council members who are pushing the proposal for facts about why an independent board would function better than Austin Energy’s, they pointed to the Electric Utility Commission’s consistent recommendations over several years to go to an independent board. So we looked at the EUC’s October 2012 recommendation to the City Council and it referenced the city of Greenville’s reasons for adopting an independent board in 1988 as reasons the city of Austin should make such a change. Such things cited were "political interference, lack of consistent policy direction, lack of consistent management at the top, failure to operate on a business like basis, (which) has resulted in inefficiently operated and controversial electric utility system."

That recommendation was given without establishing that Austin’s situation is comparable to Greenville’s, a town of 25,000 northeast of Dallas. City Council members also have repeatedly stated that they don’t have the expertise to make decisions regarding the utility in an environment that grows ever more complicated. Certainly a board that provides expertise in the way of engineering, technology, accounting and management could help improve Austin Energy’s bottom line. But those factors don’t guarantee efficiency or success.

During the fiscal crisis of 2007 and 2008, there were no lack of experts and independent governing boards operating in a complicated market environment, yet that didn’t prevent the collapse of U.S. financial institutions. What was lacking then were accountability and transparency, the very ingredients that have helped Austin Energy remain competitive, focused on community values and accountable to the public – even when it errs. How will an independent board maintain or improve such accountability and transparency?

And keep in mind that it was not the experts at the city’s Electric Utility Commission, but the non-experts, including watchdog groups such as Public Citizen Texas teaming with regular Austin residents, who forced Austin Energy to lower proposed rate hikes last year that were initially through the roof. The EUC experts essentially rubber-stamped Austin Energy’s proposal for double-digit rate hikes on residential customers.

As the governing authority over Austin Energy it was the Austin City Council, responding to public concerns, which revised rates downward. No one is saying that the process, including all-nighters at City Hall, wasn’t messy. With all of its flaws, uncertainty and controversy, it was democratic and transparent. Those factors ultimately produced a better result for residential and low-income customers and nonprofits. Decisions regarding rates that emerged from the turmoil have since been vindicated by outside financial institutions that upgraded Austin Energy’s bond ratings following those events. Bond ratings are one of the most important – and objective – indicators of a utility’s financial health. By that measure Austin Energy is doing well.

We continue to support exploring the concept of an independent governing board for Austin Energy. What is not acceptable is making a decision without bringing forth facts showing how an independent governing board would improve the utility’s performance on various measures, something that compares Austin Energy’s performance with its peers governed by independent boards. That is months overdue.